Chapter 2 provides knowledge of money and the payments system. After completing this chapter, students will be able to understand what money is, to understand how we use money and to understand how we measure money. | Chapter Two 2- Goals of the Chapter To understand what money is. To understand how we use money. To understand how we measure money. 2- Money and How We Use It Money is an asset that is generally accepted as payment for goods and services or repayment of debt. Income is a flow of earnings over time, where wealth is the value of assets minus liabilities. 2- Money and How We Use It Money has three characteristics: It is a means of payment It is a unit of account, and It is a store of value. The first of these characteristics is the most important 2- Money and How We Use It It is a means of payment People insist on payment in money. Barter requires a “double coincidence of wants”. Money is easier and finalizes payments so no further claim on buyers and sellers. 2- Money and How We Use It It is a unit of account. Money is used to quote prices and record debts - it is a standard of value. Prices provide the information needed to ensure resources are | Chapter Two 2- Goals of the Chapter To understand what money is. To understand how we use money. To understand how we measure money. 2- Money and How We Use It Money is an asset that is generally accepted as payment for goods and services or repayment of debt. Income is a flow of earnings over time, where wealth is the value of assets minus liabilities. 2- Money and How We Use It Money has three characteristics: It is a means of payment It is a unit of account, and It is a store of value. The first of these characteristics is the most important 2- Money and How We Use It It is a means of payment People insist on payment in money. Barter requires a “double coincidence of wants”. Money is easier and finalizes payments so no further claim on buyers and sellers. 2- Money and How We Use It It is a unit of account. Money is used to quote prices and record debts - it is a standard of value. Prices provide the information needed to ensure resources are allocated to their best uses. Using dollars makes relative price comparisons easier. 2- When you shop, should you use a debit card or a credit card? A debit card works like a check only faster. Funds are immediately removed from your account. A credit card makes a deferred payment. If not paid on time, there is a late fee. If not paid fully, there is interest on the debt. But if you do pay on time and fully, it is an interest free loan for a period of time. Credit cards allow you to build a credit history. 2- Money and How We Use It It is a store of value A means of payment has to be durable and capable of transferring purchasing power from one day to the next. Paper currency does degrade, but is accepted at face value in transactions. Other forms of wealth are also a store of value: stocks, bonds, houses, etc. 2- Money and How We Use It Store of Value (cont.) Although other stores of value are sometimes better than money, we hold money because it is liquid. Liquidity is a
